16h ago
There are only 2 serious ways to make 10% on ETH but they are not equal
The biggest of the two is also the most risky
V1 - Convert ETH to WEETH, Deploy into AAVE, Borrow ETH, and loop 7-9 times
This is an overcrowded trade with billions deployed on AAVE ~ 7 billion
This trade only works if the borrow rate for ETH on AAVE stays below 2.60
A few months back, the ETH borrow rate on AAVE spiked into double digits sparking a market wide panic
The panic came from the realization of the duration risk of the trade
Duration risk is how many days it takes to unwind a trade if it should go into negative carry. Currently the unstaking que for ETH is ~40 days.
The rough math works likes this - if you have 7 loops it would take 280 days to fully unwind the position
Your other option to exit the trade is to swap WEETH for ETH. This is rarely a good option as slippage is material even during calm periods but if borrow rates spike the slippage will grow considerably which we saw this summer
There is a better way
V2 - swap ETH for wsteth and deploy into Moonwell on Base, borrow more eth and Loop
On the surface, this is the same trade but on a different chain and protocol. But here is the difference, Moonwell is more retail focused vs AAVE.
The smaller capacity makes insitutions stay away becuase they cant scale into meaningful trades. This leaves a beautiful opportunity for retail.
By doing this with wsteth there is much better liquidity on aerodrome to swap wsteth vs ETH and much smaller slippage. Furthermore the cost of borrowing ETH on Moonwell is 50bps vs 254 bps on AAVE.
This means you can achieve the same yield as the AAVE trade with less loops(reducing duration) and with better liquidity if things go wrong
Enjoy your 10% on ETH, a gift from the GODS!!
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